Financial markets were volatile as the outcome of the US election was far from clear. However, risk assets later surged as investors started to consider the positive aspects of a Biden presidency constrained by a Republican Senate. As the likelihood of massive US stimulus measures faded (along with the probability of higher inflation and bond yields and a stronger dollar), investors started to position portfolios to benefit from an environment of slower growth, more Fed stimulus and fewer major changes to business regulation and taxation. This led to a rotation back into tech stocks and government bonds and out of more economically sensitive shares.

UK

The FTSE 100 jumped 6.0% over the week.

The Bank of England said it would inject an additional £150bn into its bond-buying programme from January 2021.

Talks between the UK and EU on a future trade relationship appear to have reached an impasse yet again.

As England entered its second lockdown, Chancellor Rishi Sunak announced that the furlough scheme would be extended until the end of March 2021.

US

The S&P 500 surged 7.4%, their best weekly performance since April. The tech heavy Nasdaq gained 8.8%.

Five days after the election, Democrat Joe Biden became the next US president following news that he had won the crucial swing state of Pennsylvania. The election result was delayed due to the quantity of mail-in votes that needed to be counted – with several states prohibiting counting before voting had closed while others allowed mail-in votes to arrive up to three days after the election date. While the Democrats retain control of the House of Representatives, the race for the Senate looks finely balanced and is likely to be decided by run-off voting in Georgia in January 2021. Donald Trump refused to accept the result, launching legal action in states where the outcome had been narrow.

Non-farm payrolls rose by a better-than-expected 638,000, helping the unemployment rate fall to 6.9%, taking it below 7 % for the first time since March.

The Federal Reserve kept monetary policy unchanged but Fed chair Powell warned the rise in coronavirus cases around the world was “particularly concerning”.

Europe

The FTSEurofirst 300 rallied 7.0% over the week.

Flash estimates of service sector activity in Spain and Italy revealed the impact of the latest lockdown measures. Spain’s index fell to a five-month low of 41.4 in October, while Italy’s fell to a four-month low of 46.7. In contrast, manufacturing activity strengthened, with Italy’s index rising to a 31-month high of 53.8 in October, while Spain’s index hit a three-month high of 52.5.

Japan

The Nikkei 225 gained 5.9% over the week, reaching its highest level since November 1991.

Pacific Basin

Chinese exports rose 11.4% year-on-year in October, the strongest growth rate since March 2019 and compared to a 9.9% increase in September. Imports rose 4.7% in the month. While the increase was smaller than expected, it was the second consecutive month of growth.

Beijing abruptly pulled Ant Group’s planned IPO after draft regulations would likely force the fintech company to rethink its business model. The IPO had been planned for Thursday and could now be delayed by at least six months.

Emerging Markets

Turkish president Recep Tayyip Erdogan sacked the country’s central bank governor, the second such occurrence in just over a year. One day later, Turkey’s finance minister (who is also the President’s son-in-law) resigned, citing health concerns.

Bonds

The yield on the 10-year US Treasury bond closed the week at 0.82%, little changed from the level at the end of the previous week. However, US government bonds experienced the most volatile week since the pandemic-induced turmoil in March. Having originally anticipated a “blue wave” of Democratic victories in both the Senate and House of Representatives, resulting in expected expansive economic stimulus, the 10-year Treasury yield touched a peak of 0.94%, before sharply reversing course when it became clear the results were closer than anticipated, reaching a trough of 0.72%.

The yield on the 10-year German Bund ended the week little changed at -0.62%, while the yield on Italy’s five-year bond turned negative for the first time.

During the week, the total amount on bonds trading on yields of below zero reached $17.05tn, surpassing the previous peak reached in August last year.

Please email us if you would like to receive our weekly newsletter direct to your inbox.